China’s drop in exports is signalling a deepening slowdown in global trade, with high interest rates taking an increasing toll on spending in the West. Trade has been slowing for months, but the pullback probably has further to run as slowdown in the US and recession in Europe take hold.
Chinese exports fell at their steepest annual pace in June since the early days of the pandemic in February 2020. The value of goods shipped overseas from China fell 12.4% in June compared with a year earlier. China isn’t the only Asian exporter reporting falling overseas sales. Exports from Taiwan fell 23% in June compared with a year earlier, Vietnamese exports were down 11%, and South Korean exports were down 6%.
Global trade has been softening for months as Western consumers spend less on electronics, home improvements and other consumer goods after splurging during the pandemic. Instead, they are spending more on services such as eating out, travel and leisure.
Longer term, the outlook for global trade has taken a hit as major Western economies push to reorder global supply chains and bring a bigger slice of manufacturing and investment back home. Part of this process reflects a desire amongst the advanced economies to lessen their dependence on China for geopolitical and strategic reasons. The International Monetary Fund (IMF) said in a recent report that it anticipates global investment by rich countries will increasingly flow toward other advanced economies. Some economists now see global trade growing more slowly in the years ahead than the global economy, reversing a long trend that reflected deepening economic integration.
For Beijing, the steepening downturn in global trade intensifies the growth challenge facing China. A consumer-led recovery is fading as households face a weak labour market and downturn in the real-estate sector, disappointing hopes for a strong rebound after almost 3 years of strict COVID-19 controls.
Source: WSJ
Behind China’s headline export data are signs of shifting patterns of trade in the global economy, with a growing share of China’s exports heading to the Middle East and Latin America, reflecting strengthening economic links thanks to Chinese investment and its appetite for natural resources. Exports to Russia surged in June, a sign of the close ties between Moscow and Beijing and the effect of Western sanctions on Russia.
China is finding success exporting cheap electric cars and smartphones to emerging markets, replacing more expensive Western alternatives. China surpassed Japan as the world’s biggest exporter of vehicles in the first quarter of 2023.
These shifts reflect worsening relations between China and the US. Tariffs on a range of goods mean China accounted for around 15% of US imports in the 12 months to the end of May 2023, down from more than 20% before former Donald Trump hit a range of Chinese goods with tariffs in 2018.
Still, China continues to dominate global trade as it pushes deeper into markets other than the US. China’s overall share of global goods exports was 14.4% in 2022, up from 13% the year before the pandemic and 11% in 2012, according to World Trade Organization data. The US in 2022 accounted for 8.3% of global goods exports and Germany 6.6%.
Though some economies such as Mexico, Vietnam, Indonesia and India will probably benefit as manufacturing activity relocates out of China, it is possible that the overall effect of such barriers to free-flowing trade will be harmful, and the net impact on global GDP will be negative.
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